The MiFID II reforms will change virtually every
aspect of the equities business globally. European
equity market structure will deteriorate within
six months of go live as systematic internalisers
(SIs) will trade against the more liquid equities
directly leaving the exchanges to be the execution
venue of last resort. Instead of 8% of European
market liquidity being executed in the dark, the SI

interaction rate will be closer to 30%. At a level of
20%, exchanges will mount an initiative to change
the SI execution model - this will start MiFID III.
Furthermore, algorithmic flow will become more
competitive and traditional HFT type firms will
enter this business and be very competitive. Execution value will likely migrate to blocks, capital
and sourcing liquidity.

More asset managers topay for research outof their own pockets

The ramifications of MiFID II will reverberate through the buy-side over the
course of the year, as firms continue to
grapple with how they pay for research.
This in turn will likely push more asset
managers to pay for research out of their
own pockets, allowing trading desks to
pursue lower cost venues, ultimately
benefiting their end investors. Beyond
MiFID, we think overall block volume as
a percentage of the market will continue
to grow steadily as block trading tools
continue to improve. Absent a geopolitical shock, low volatility will contribute to
this; if the stock isn’t moving, why not
trade big?

Larry Tabb, founder and chairman, TABB Group

WARNING: Get ready fora bitcoin collapse

Bitcoin collapse. Is it a bona fide currency? Is
it another asset class? Is Bitcoin just the first
player, but not the best example of cryptocurrencies? Today, investors are using it as a
store of value, similar to gold (but not perfectly
correlated), to hedge against geopolitical
issues. If you look at the correlation to other
asset classes, it’s surprisingly uncorrelated
with everything, which means adding bitcoin to
a portfolio increases the efficient frontier. However, we are still in the infancy of blockchain as
a technology, and many other cryptocurrencies
exist. Bitcoin has some limitations (like 21M is
the highest possible number of bitcoins ever
available) which others don’t. Look for bitcoin
to surge around a geopolitical event, but later
in the year lose most of its value. Jamie Dimon
has famously disparaged bitcoin (but praised
blockchain!), however at the same time the
CME has released bitcoin futures.